A member of the Central Bank of Nigeria’s Monetary Policy Committee, Murtala Sagagi, has identified excessive government spending as a major obstacle to effective monetary policy in Nigeria.
According to Sagagi, uncontrolled fiscal expenditure undermines monetary policy measures, making it difficult to achieve stability in inflation and exchange rates.
In his personal statement at the 298th MPC meeting, Sagagi highlighted structural challenges such as weak institutions, persistent use of cash by both government and the public, and deep-seated rigidities as key factors hindering economic progress.
He noted that despite various government reforms, legacy issues continue to constrain Nigeria’s economic growth.
Sagagi warned that unless these obstacles are addressed, the country’s aspiration of becoming a trillion-dollar economy will remain out of reach.
While acknowledging the Central Bank’s continuous efforts to introduce policies aimed at stabilizing prices and the foreign exchange market, he stressed that fiscal indiscipline continues to erode the impact of these measures.
“The excess spending by the government is one of the biggest monetary policy challenges in the country,” Sagagi said.
He emphasized the need for better coordination between fiscal and monetary authorities, stating that without it, efforts to control inflation and stabilize the naira would remain insufficient.
“The efficacy of the policies largely depends on effective fiscal-monetary policy coordination,” he added.
Philip Ikeazor, another MPC member and Deputy Governor for Financial System Stability at the CBN, echoed similar concerns.
He blamed fiscal activities, particularly frequent injections by subnational governments, for persistent inflation despite the CBN’s monetary tightening efforts.
Ikeazor warned that unchecked interventions by state governments could further fuel inflationary pressures.
He recalled his previous stance on supporting a rate hike if these fiscal actions continued to weaken monetary policy transmission.
“In the last MPC, I provided forward guidance on the intention to support a hike in rates if the fiscal actions of the subnational governments continue to weaken the effective transmission of monetary policy,” he said.
At the November MPC meeting, Ikeazor voted for a 50-basis-point increase in the monetary policy rate, arguing that a more aggressive approach was needed to tackle inflation.
However, the majority of the committee members adopted a 25-basis-point hike.
Ikeazor attributed Nigeria’s inflationary pressures to prolonged fiscal imbalances, high government spending, and external shocks.
He called for tighter control of excess liquidity and urged the government to shift its spending focus towards capital investment to enhance productivity and economic resilience.
Both Sagagi and Ikeazor urged the federal government to exercise fiscal prudence by reducing recurrent expenditure and implementing policies to boost domestic productivity.
Sagagi emphasized the need for stronger alignment between fiscal and monetary policies to avoid undermining monetary tightening efforts.
Meanwhile, Ikeazor called for more decisive monetary actions to curb inflation and stabilize the economy, acknowledging that although monetary tightening had slowed economic growth, it was necessary for restoring stability and investor confidence.
The CBN has scheduled its next Monetary Policy Committee meeting for February 17 and 18, 2025.
